What is a business plan used for?

Posted on 3rd January 2015 at 4:10pm by Carl Reader in Business

A business plan is used for a number of reasons, however in my experience most prospective small business owners only prepare them to obtain funding from the bank. I strongly believe that this is the wrong approach, as they are a valuable document for any business owner.

Firstly, I believe that the business plan is a fantastic tool for exploring the business and your approach to it. It fulfils the purpose of being a strategic plan, but also a vision and an appraisal of the business. The more honestly that this is prepared, the more robust the plan is – and it’s not unknown for ideas to change during the preparation of a business plan!

It also provides an excellent accountability tool for you to monitor the progress of the business once you start trading. Within a typical business plan, as detailed later in this chapter, there are a number of financial projections which you can then track actual performance against, to ensure that you are hitting your budgets. Business plans should also identify and quantify the main non-financial KPI (key performance indicators) of the business, which can also be tracked during this process.

Whilst preparing a plan, it is vital that you are as honest as possible during the process. The typical user of a business plan (investor, bank manager, etc) will be playing devils advocate, and looking for opportunities to highlight areas where you could have been more prudent, or perhaps have missed a vital business risk. These weaknesses in a plan might damage the overall perception that they have of you as a business owner, and might cause them to investigate further for other discrepancies. Therefore I would always suggest that you provide a fair and balanced view of both the opportunities and the risks.

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